FX.co ★ Yen Weakens Ahead of Prime Minister Vote

On Monday, the yen declined towards 151 per dollar, continuing its downward trend from the previous session. This movement occurred as investors prepared for Japan’s upcoming leadership election on Tuesday, which will determine the nation's next prime minister. Market sentiment was influenced by the announcement that the ruling Liberal Democratic Party and the Japan Innovation Party have agreed to form a coalition government, setting the stage for Sanae Takaichi to potentially become Japan’s first female prime minister. This development, often referred to as the “Takaichi trade,” has been driven by expectations of increased fiscal spending and a lenient monetary stance. Consequently, it has led to increased purchasing in Japanese stocks while exerting pressure on domestic bonds and the yen. Looking ahead, investors are also focusing on next week’s Bank of Japan meeting, where it is anticipated that policymakers will opt to maintain the current interest rates. On the international front, the yen, typically seen as a safe-haven asset, has encountered selling pressures as risk appetite improved amid signs of thawing trade tensions between the US and China.